Inflation and Retirement

We spoke with Andy Burish, the managing director of The Burish Group at UBS, about what you need to know when considering retirement.

HOW IS INFLATION AFFECTING THE INVESTMENT MARKETPLACE?

Inflation expectations are driving up interest rates. We're coming to the end of what we call “negative interest rates,” where you could borrow money at near-zero rates. If inflation stays above 3%, then interest rates have to be higher than it. For the last 20 years, inflation was below 2%. We ended 2021 at 7.5%, and I'll bet we're going to be around 7 or 8% this year. The stock market doesn't like inflation, especially over 4%. Once inflation causes rent to go up, higher insurance rates, those things are never really cut again. They become structural.

COULD IT HARM RETIREMENT PLANS?

Absolutely. Investors have to keep up with the cost of living. You have to plan for inflation. For the last 20 years, it wasn't a big factor. Now with inflation back above 3%, it is a big factor. So people have to invest differently. They have to invest a portion of their assets in something that keeps up with inflation, like real estate or dividend-paying stocks. Those are just two examples of inflation assets that provide cash flow. With those, you're getting a cost-of-living adjustment.

WITH THAT IN MIND, HOW DOES UBS’ WEALTH MANAGEMENT TEAM HELP CLIENTS INVEST AND PREPARE FOR RETIREMENT?

One way is we make sure our clients have two to three years of liquidity and non-correlating assets like alternative investments and private markets. In other words, our clients look at how much they live on. They put two years' worth of living expenses into something that's not a risk, whether that's a money market account or a savings account or Treasury bills. The rest of the money, they can invest for longer-term growth. If you have that two years or three years of cash available, then that's usually enough time so that you're not forced to sell any of your stocks or bonds or real estate if we hit a down market. ◆

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